ADM reported a doubling of quarterly profit from a year earlier. Rival Bunge declared a surprise loss. Their starkly different second-quarter earnings show how varying strategies can produce drastically different results, providing lessons for other global grain traders.
Agricultural commodities trader Archer Daniels Midland Co (ADM) has so far weathered the U.S.-China trade war better than rival Bunge Ltd with a more conservative trading strategy, diversified crop sales and limited exposure to Brazil’s currency swings. The companies perform similar functions: buying, selling, transporting and processing crops around the world. However their starkly different second-quarter earnings show how varying strategies can produce drastically different results, providing lessons for other global grain traders, according to Reuters.
ADM reported a doubling of quarterly profit from a year earlier, as higher volumes and margins for U.S. grain and soy exports put it in a strong position for trade gains through the rest of the year. A day later, Bunge stumbled to a surprise loss it blamed partly on wrong-sided bets that a prompt trade truce would push up soybean futures. Instead, the trade war escalated and prices fell sharply, piling pressure on the company to reverse losing positions.
ADM, which is more focused on U.S. operations than Bunge, cashed in as China shifted its soybean purchases to Brazil because of the trade war, prompting other countries to buy more U.S. soy, Chief Financial Officer Ray Young told Reuters.
Bunge reported a $125 million mark-to-market loss tied to soybean crush contracts in the April-to-June quarter and confirmed losses from hedges in the soy futures market that could have been profitable with a trade resolution. It also took a $24 million hit from currency hedges in Brazil. Bunge traders are known for taking more risk than those at ADM and they did not pay off this time, said Michael Underhill, chief investment officer for Capital Innovations, a shareholder of both companies. “With Bunge, it was the commodity as well as the currency exposure that showed up and was reflected in their lower earnings,” he said. The company defended its bet, saying it will recover those losses in the second half of the year as it cashes in on the robust soy processing margins locked in during the second quarter.
ADM offset some of its mark-to-market losses in soy with gains on canola for an overall net mark-to-market loss of about $40 million. Bunge said it does not encourage traders to take more risks.
Both companies had said the trade dispute between the world’s two largest economies was an opportunity to increase returns after a global oversupply of food commodities limited trading opportunities in recent years. “ADM has been able to deliver some of their improved results earlier than we have, and some of that is timing. But, in the case of Bunge, it’s coming,” Bunge Chief Executive Officer Soren Schroder said in an interview. As the trade war drags on, Schroder said Bunge will continue with a strategy to lock in profit when it can because trade policies could quickly shift.REUTERS